CHAPTER 23: WINDING UP OF

COMPANIES
Introduction
• The Companies Act makes a provision for the winding up of companies.

• The Act addresses the process of winding up solvent companies (there are companies that are
financially stable and capable of meeting their obligations).

• Additionally, the Act also includes interim measures for the winding up of insolvent companies (these
are companies in a state of financial distress and are no longer able to meet their financial obligations).

• In the future, financially distressed companies will be wound up according to a new Bankruptcy Act.

• Until that happens, Chapter XIB of the Companies 1973 Act continues to be in effect as if the 1973 Act
was never repealed.
• Item 9 of Schedule 7 of the Act provides that sections 343, 344, 346, and 348 to 353 of the 1973 Act do
not apply to the winding up of a solvent company.

• By implication, since these sections are deemed inapplicable to the winding up of solvent companies, it
suggests that they are applicable to the winding up of insolvent companies.

• Finally, the Act also includes provisions for the deregistration of a company by the Companies and
Intellectual Property Commission (CIPC).
Winding up of solvent companies
When a company is solvent, meaning it has enough assets to pay off its debts and meet its financial
obligations, there are different ways it can be wound up or closed down.

The three main methods of winding up a solvent company are:

• Voluntary winding up by shareholders

• Winding up by court order, and

• Winding up by creditors under Section 80(1) of the applicable legislation.

It is important to note that winding up by the court and winding up by creditors in terms of Section 80(1)
is similar to winding up for insolvent companies.

This means that the processes followed in winding up solvent companies through court order or by
creditors are akin to the processes used for insolvent companies.
Voluntary winding up by shareholders

Voluntary winding up by shareholders refers to the process of closing down a company by the
collective decision of its shareholders.

This process involves several steps that need to be followed to ensure a proper and legal winding up.

• The first step is the adoption of a special resolution to that effect by its shareholders.

• The second step is for the company to provide security to the satisfaction of the Master for the
payment of the company’s debts 12 months after commencing the winding up procedure. The
Master may, in appropriate cases, dispense with security.

• The next step is the filing of the special resolution and the prescribed notice and payment of the
prescribed fee to the CIPC. The CIPC must then promptly deliver a copy of the notice to the
Master.
The liquidator
• The Act simply states that an appointed liquidator may without the sanction of the court exercise all
powers by the old Companies Act given to the liquidator in a winding up by the court.

• However, the liquidator's actions are subject to directions given by the company (in a members'
voluntary winding up) or the creditors (in a creditors' voluntary winding up) during a general meeting.
Effect
When a company undergoes a voluntary winding-up process, there are certain effects and changes that
take place.

• One of the key effects is that the company, in this case, continues to exist as a legal entity, known as a
juristic person.

• However, despite its continued existence, the company is required to cease carrying on its regular
business activities during the winding-up process.

• This means that the company must halt its normal operations, refrain from entering into new business
transactions, and generally put a stop to any ongoing commercial activities.

• Furthermore, the powers of the directors also cease.

Winding up by the court
For winding up by the court, the court recognises the following applicants (these are applicants who are
considered legitimate parties with the legal standing to approach the court and request the winding up of the
company):

• Any interested person

• The company itself

• Shareholders of the company ‘

• Practitioner in a business rescue scheme

• The creditors of the company

• The directors of the company

• The CIPC or the Takeover Regulation Panel

Here is an elaboration on the recognized applicants:

1. Interested person
Section 79 of the Act empowers the court to order the winding up of a company based on the application
of an interested person (a person who has a legitimate interest in the affairs of the company)

This means that if an interested person has valid grounds to believe that the company should be wound
up, they can submit an application to the court requesting the winding up of the company.

After the shareholders of a company have adopted a resolution for the voluntary winding up of a
company, the company may be wound up by the court as an insolvent company:
o on the application of any interested person
o if it is determined that the company is or may be insolvent.
• However, the Act does not define when a company may be insolvent.

• It is assumed that “is insolvent” refers to a situation where the company is factually insolvent, in order
words, where companies liabilities exceed its assets.

• It is further assumed that “may be insolvent” refers to the situation where the company is commercially
insolvent, in other words, where the company is unable to pay its debts.

• The exact meaning and interpretation of terms such as "is insolvent" or "may be insolvent" will be
subject to the court's discretion and interpretation.
2. Company
In certain situations, the company itself can apply for its own winding up through a special resolution,
which typically occurs where the following grounds exist, such as deadlock or situations where it is
considered just and equitable to wind up.

• A deadlock of directors refers to a situation where the directors are deadlocked in the management of
the company and the shareholders are not able to break the deadlock. As a result of the deadlock, the
company has suffered, or may suffer, irreparable harm or the company cannot be managed to the
advantage of the shareholders.

• A deadlock of the shareholders refers to a deadlock in the voting power of the shareholders with the
result that they are unable to appoint for two consecutive annual general meetings.
3. Shareholders
Shareholders can apply to the court for the winding up of the company:

• by way of a special resolution, where shareholders approach the court to have the original voluntary
winding up changed into a winding up by the court

• on the grounds of a deadlock

• with leave of the court on the grounds that the company’s directors, prescribed officers, or other
persons in control of the company are acting in a manner that is fraudulent or illegal, or assets are
being misapplied or wasted.
4. Practitioner in a business rescue scheme
• It is important to remember that in the context of business rescue, a practitioner is appointed to oversee
and facilitate the process of rescuing a financially distressed company.

• The practitioner's primary objective is to develop and implement a business rescue plan that can
potentially rehabilitate the company and ensure its long-term viability.

• However, there may be instances where the practitioner determines that the company has no reasonable
prospect of being rehabilitated, despite their efforts.

• The practitioner can also apply to the court to have a company under business rescue to be wound up.

• The ground for the application is that the company has no reasonable prospect of being
rehabilitated.
5. Creditors
The creditors may apply to the court for the winding up of the company on the grounds that:

• the company’s business rescue plan has been rejected and the business rescue practitioner has lodged a
notice of termination

• A business rescue plan has been proposed but rejected and

o no affected person has applied in terms of section 153 for the extension of the proceedings
o the court finds it just and equitable in the circumstances to have the company wound up

• It is otherwise just and equitable to do so

6. The Companies and Intellectual Property Commission (CIPC) and the Takeover
Regulation Panel (TRP)
The CIPC or TRP may apply for the winding up of a company by the court.

The grounds are:

• The company, its directors, prescribed officers, or other persons in control of the company have acted
or are acting in a manner that is fraudulent or otherwise illegal.

• The CIPC or TRP has issued a compliance notice relating to that conduct but
o the company has failed to comply with the notice
o within the previous five years enforcement procedures in terms of the Act or Close Corporations Act
were taken against the company, its directors or prescribed officers, or other persons in control of
the company, for substantially same conduct, resulting in an administrative fine or conviction for an
offence.
Dissolution
• The Act refers to the dissolution of a company where the company has been wound up by the court and
not to the voluntary winding up of the company.

• As soon as the winding-up process is complete and all the company's affairs have been settled, the
Master must file a certificate with the CIPC to that effect plus a copy of the court order for final
liquidation.

• This certificate serves as proof that the company has been fully wound up.

• Upon receiving the certificate and court order, the CIPC will record the dissolution accordingly and the
company's name will be removed from the companies register, indicating that it no longer exists as a
legal entity.
Deregistration
Grounds for deregistration
The CIPC has a discretion to deregister a company on one of the following grounds:

• The company did not file its annual return for two successive years and failed to provide adequate
reasons for this.

• The company appears to have been inactive for the last seven years.

• The company has ceased to do business and no assets.

Consequences of deregistration

Company assets

• The assets of the deregistered company are held in trust for a period of 5 years for the benefit of the
company.

• Any interested person can apply to have the company reinstated on the companies register, failing
which the trust property will become the property of the state.

Dissolution and liability

• After a deregistered company has been dissolved, the former directors and shareholders remain liable
for any act or omission that took place before deregistration as if the company was not deregistered.